> for rent & home prices in my area and found that basically all of the net worth was due to home price appreciation.
It's not just home appreciation, it's down also the down payment.
Say the housing market increases at 5%/year. If you buy a house in all cash, you will get 5% returns.
However, if you use that same money for a 20% down-payment to take out a loan (say 3% interest) to buy a house that's 5X more expensive, your returns will be 13%/year (=5% * 5X leverage - 3% interest on 4X of the cost). Huge difference.
Of course, these are fake numbers, and fail to account for a variety of other factors (taxes, closing costs, maintenance, etc.). However, the point is that housing market increase is not at all the full story.
It's not just home appreciation, it's down also the down payment.
Say the housing market increases at 5%/year. If you buy a house in all cash, you will get 5% returns.
However, if you use that same money for a 20% down-payment to take out a loan (say 3% interest) to buy a house that's 5X more expensive, your returns will be 13%/year (=5% * 5X leverage - 3% interest on 4X of the cost). Huge difference.
Of course, these are fake numbers, and fail to account for a variety of other factors (taxes, closing costs, maintenance, etc.). However, the point is that housing market increase is not at all the full story.